ENERGY POLICY:

Conservative groups, watchdogs, press for an end to all subsidies

The new Congress is anchored by a GOP freshman class that proudly dons the mantle of free markets. But does that mean lawmakers are prepared to stop subsidizing energy production -- in all forms?

A passel of conservative and watchdog groups raised that very question yesterday in a letter to Capitol Hill that took broad aim at all types of energy benefits, including tax breaks, loan guarantees and direct payments. Without singling out ethanol or oil, solar or biomass, the groups asked Congress to "commit to a sustained, aggressive process" that winds down current federal subsidies while nixing any new goodies.

"Centrally controlled energy policy has not worked, Washington does not know best, and the law of unintended consequences cannot be vitiated," the letter's 29 signatories wrote. Among their ranks were tea party stalwarts Americans for Prosperity and FreedomWorks, the right-leaning Club for Growth and Americans for Tax Reform, and the nonpartisan Taxpayers for Common Sense (TCS).

Yet as representatives of those groups acknowledged during a panel discussion yesterday, the herculean task of even starting to phase out energy subsidies calls for a widely acceptable definition of the S-word.

"If you want it and don't want to get rid of it, it's probably a subsidy," said Jack Spencer, research fellow in nuclear energy at the conservative Heritage Foundation. "If your business depends on it, it's probably a subsidy."

The Energy Information Administration's (EIA) most recent subsidy analysis found $16.6 billion spent on four types of industry benefits in fiscal 2007. That report, now undergoing an update at the request of House Republicans, did not consider landmark policy shifts such as the Obama administration's economic stimulus law and consumption mandates such as the renewable fuels standard.

Since the EIA's last analysis, in fact, both political parties have cited weighty total benefits to taxpayers from rolling back subsidies for various forms of energy. A bipartisan Senate bill eliminating tax credits for ethanol blending is estimated to save $5.7 billion annually, while House Democrats recently projected that ending several oil-company tax breaks would save $40 billion over five years (Greenwire, March 9, E&ENews PM, Feb. 10).

Taxpayers for Common Sense Vice President Steve Ellis yesterday added an even higher number, noting that a 1990s-era royalty-relief law stands to give oil and gas companies as much as $53 billion in benefits over the next 20 years.

"Whether people want to support renewables, they want to support nuclear power, or they want to support other industries, we'd be much better off eradicating all subsidies across the board and having a level playing field," Ellis said.

Nonetheless, his reference to the "poorly" crafted royalty law illustrates the towering political hurdles facing any broad anti-subsidy campaign. Democrats have long sought to end the years-old statute that allows royalty-free development on public lands, but the push foundered amid fierce pushback from oil companies.

Similarly, the ethanol industry fought to win a one-year extension of its blenders' tax credit and tariff last year despite steep odds on the Hill. The extension hitched a ride alongside the renewal of tax benefits for wind, solar and other clean energy producers (E&E Daily, Dec. 17, 2010).

Rep. David Schweikert (R-Ariz.), one of the conservative House freshmen at whom the groups' letter was notably aimed, said that the letter's "general principle" is one that could find wide acceptance among his colleagues.

"I know there's this frustration around here that politics keeps trying to choose winners and losers," he said in an interview yesterday. "When government does that, too often it doesn't work."

But defining "fair treatment," the Arizonan added, "can be a lot more complicated." Schweikert cited the oil industry's tax credit for well depletion as an example, drawing parallels between that benefit and the depreciation credit given to manufacturers -- which would be unlikely to qualify as an energy-specific subsidy.

The conservatives and watchdogs who signed onto the letter readily acknowledged that their request is the heaviest of congressional lifts. Andrew Moylan, vice president of government affairs at the National Taxpayers Union, ascribed ballooning energy subsidies to a parochial bias that might prove intrinsic to the Capitol.

Lawmakers are "all thumbs" when it comes to energy development, Moylan said, because they tend to be more interested in development "that benefits their district" than in commercially promising technology.

What's in the tank

Several of the anti-subsidy groups pointed to corn ethanol as the most likely industry to see its subsidies pared back during the 112th Congress (Greenwire, March 7).

"Lawmakers are like little kids rooting for sports teams -- they like a winner," Ellis said, describing the growing crop of bills that would rein in ethanol mandates and tax credits as a sign that members are "sensing something is happening."

But he also acknowledged that ethanol is a "unique case," given the "blood, sweat and tears" expended by its critics in recent years. And as any energy sector would, ethanol producers are marshaling their heft and enlisting powerful congressional allies to beat back any attempt at limiting their federal supports.

Indeed, five major ethanol and agriculture trade groups sent a letter to the Senate yesterday urging opposition to an amendment from Sen. Tom Coburn (R-Okla.) that would repeal the blenders' tax credit.

Striking the credit "just four months after voting to provide it is the kind of job-killing, innovation-stalling policy that will keep America addicted to foreign oil," wrote the ethanol groups, including Growth Energy and the Renewable Fuels Association.

In addition, the anti-subsidy groups' consideration of fossil fuel subsidies on an equal footing with other benefits could unsettle Republicans who are staking their energy agenda on a call for more domestic oil and gas drilling. Yet Ellis and Spencer embraced a broad list of sacred cows yesterday.

"We burn a lot of fossil fuel, and I love it," Heritage's Spencer said. "That's why we have the standard of living we have today." Still, he added, subsidies are not necessary to ensure that activity continues.

Rep. Allen West (R-Fla.), another House freshman with a high profile on energy, said in an interview that he supported the letter's call to "level the playing field" and "let that invisible hand" of capitalism work its will.

Asked about the prospect of ratcheting down oil subsidies while encouraging more domestic production, West indicated that lawmakers might do well offering the industry a tradeoff that would free up more offshore land.

"We need to look at [whether to tell oil companies], 'We're going to take away the subsidies, but now it's up to you guys to do the development,'" he said.